The start of a new year typically brings hope and promise as people make resolutions to be healthier, better people, etc. but what resolutions are you making for your business? The start of a new year is also a great time to evaluate the state of your business so you can grow it even larger. Some businesses hire consultants like our company to help them figure this out but if with the right tools and a bit of honesty, you can do most of the work yourself.
January 2nd (or earlier) is a great day to focus on your business plan for the upcoming year. We all want to grow our business but in order to do that effectively, we need a good snapshot of where our business is currently. A tool that we use here and have used in past businesses is a SWOT analysis. For those not familiar, SWOT stands for “Strengths”, “Weaknesses”, “Opportunities” and “Threats”. It’s typically set up in a grid like the illustrations below so you can see all the categories at one time.
Each box describes the criteria for what should be filled into the box. The key to the SWOT analysis is you, and your management staff have to be brutally honest when completing it. This is a tool for your eyes only, there’s no need here embellish strengths or ignore real problems with the business.
Most small businesses are very compentent at doing what their core business is so that is usually a strength, thus they are typically good at identifying their strengths. Let’s take for example a Bagel Store that’s been around for a few years. The owners likely make great bagels, have an established, reliable staff, decent sales and are making a profit, all strengths.
Where we see small businesses struggle is the other three boxes because they are so embedded in their day to day business they often don’t step back and take a real objective view from above. So what weaknesses might the Bagel Store owner have? They might not know the exact cost of their ingredients which might impact their actual profit margins. They might not do much marketing or engage the community as well as they could. Their store might not be as clean or welcoming as it could be or the variety of bagels and coffee they offer is too limited.
The Weaknesses box usually helps drive what gets filled into the remaining two boxes, especially Opportunities. In our bagel stores scenario, some potential Opportunities could be, better cost management, add a new fad bagel, offer gourmet coffees, increase the marketing budget and support more community events. In most cases a businesses weaknesses can easily be converted into an opportunity once you recognize the weaknesses.
The reason why most businesses fail is because they failed to recognize the threats / weaknesses and/or take appropriate action before they became a major problem. So what Threats does our Bagel store face? It could be a new competitor that has a bigger, nicer store with a larger variety of choices. It could be the store space they rent is getting sold and the new owner doesn’t want to renew their lease. Maybe a key supplier for the bagel store is in financial trouble and won’t be able to provide ingredients needed to make bagels or an expensive key piece of equipment could be old and fail, causing unexpected costs and loss of business. The business could lose a key employee that isn’t easily replaced. Threats can come from anywhere, internal and external, being aware of them helps you to be better prepared should they occur and strengthens your business.
Once you have the all the boxes filled out, let the list sit for a day or two, then review it. Verify you didn’t leave anything out and begin to rank the individual lists from 1-n with 1 being the greatest strength, weakness, opportunity and threat and progressing from there. The ranking is nearly as important as the list itself because this will be the outline for your 1 year, and 5 year business plans which will focus on your strengths, address your weaknesses, identify ways to benefit from your opportunities and secure your business from the threats.
A SWOT analysis isn’t a silver bullet, but if done properly you will have a better sense of where your business is from a non-financial perspective and allow you to plan for growth while ensuring you aren’t blindsided by unforeseen problems. If you would like more information on how a SWOT Analysis can help your business please don’t hesitate to give us a call.